Wednesday, June 09, 2010

Another Tax Lesson from Pro Boxing

In April I had a post about "How Kennedy Tax Cuts Changed Pro Boxing," which generated a lively discussion about taxes with more than 60 comments. Now there's a new story about professional boxing, with some important lessons about taxes. From the New York Post:

The first boxing event at the new Yankee Stadium last Saturday was a "major success" according to Yankees Chief Operating Officer Lonn Trost, but that doesn't mean boxing will become a regular feature of the Stadium.

Availability of Yankee Stadium is an issue, but not nearly as big an issue as taxes. According to Trost, the tax on a fighter's purse is significantly higher for non-residents of New York than it is in other states, which would make it difficult to bring a match like the proposed superfight between Floyd Mayweather, Jr., and Manny Pacquiao to Yankee Stadium.

"Cotto and Foreman could come here for the first fight because the boxers felt they wouldn't be overtaxed because they're residents," Trost said. "We'd love to do Mayweather-Pacquiao, but I believe both of them are non-residents and the tax could be as much as 13 percent on the purse, where the tax out in Vegas is zero. That's a big difference."

Here's some excellent commentary from Jonathan Tobin, "High Taxes Drive Away Industries … and Boxers":"While liberal advocates for higher taxes routinely claim they are doing so to help ordinary New Yorkers, they ought to consider that in making it unattractive for fighters to perform here, they are actually robbing the people from the South Bronx and elsewhere in the city who work in the many jobs created every night Yankee Stadium is open. The failure to bring more such exhibitions to the city illustrates the simple truth that, once again, liberal economics has scored a technical knockout on the economic well-being of working-class New Yorkers."

MP: As I pointed out previously in the last post, there are a few basic tax lessons here: 1) If you tax something, you get less of it, and 2) if you cut tax rates, you might get more tax revenues.

5 Comments:

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush’s tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero ...

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession ...

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.

Anonymous at 3:08 does have a bit of a point, the republicans in 2001 and 2003 made the tax cuts expire to protect their budget totals, thinking that once cut they could not be increased, just like the estate tax will go back to the old levels on Jan 1,2011. If the congress can not agree the cuts expire, which was baked in by Bush and the congress. Of course if we did this its likley the deficit problem would be greatly dimished, and if in addition we told Iraq and Afganistan take care of themselves, but just build more predators, and announce a policy where if you are suspected of being a terrorist or around one you are a target, but we will pay $25 million for one of the top 5 in Al Queda alive.

The problem of taxation should be treated like the setting of a cover charge. No what you (the locale) are worth, and charge competitively for the services you provide. I suspect this would work fine if we had a means to keep government from providing services it has no business being in. I suppose, in a democracy, that's a process of education.